Technology

Trailblazers '23: Vantem's CapEx Light Plan To Scale Modular Fast

While other residential construction innovators race against the clock -- and investors' and lenders' financing -- to scale, this plan to build a 10-facility network of local plant affiliates may stand as an offsite model to watch.

Technology

Trailblazers '23: Vantem's CapEx Light Plan To Scale Modular Fast

While other residential construction innovators race against the clock -- and investors' and lenders' financing -- to scale, this plan to build a 10-facility network of local plant affiliates may stand as an offsite model to watch.

June 16th, 2023
Trailblazers '23: Vantem's CapEx Light Plan To Scale Modular Fast
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(from left) Chris Anderson, CEO, Vantem; Tony Watson, (retired, former CEO, Affinity), and Wayne Morrison, CEO, Affinity Building Systems

Builders braced for much worse than what's occurred this past late-winter and Spring.

What emerged from them as they girded for a big stress test on their ability to reignite absorptions pace in their selling and launching communities were the lengths they could – and planned to – go to to ratchet home prices down to meet homebuyers' "cost-of-living-crisis" limits to what they would pay.

Named and unnamed, specifically, here's what most of them meant by the lengths to which they were willing to go. Their goal: To spark the interest and desire and bend down the cost curve for millions of buyers they'd forecast were at risk of being "priced out" by soaring interest rates as the Fed tightened money supply and boosted borrowing costs.

  • Cut overhead costs (including reductions in workforce)
  • Pick up start-to-completion velocity efficiencies during lower-starts period
  • Extract price concessions from materials and products suppliers
  • Curb new land acquisition and development spending, expect where sellers conceded on future pricing, or where existing terms held predictable returns
  • Re-negotiate front-end construction trade crew contracts
  • Giving up margins

Many of those cost-curve bending measures proved, so far, to have been unnecessary.

Between mortgage buy-downs and price discounts, builders mostly have been able to jumpstart their order pace without drastic cost cutting and pressure on materials, land, and trade vendors to slash theirs.

Still, the moment in time crystallized a fundamental characteristic in most homebuilding models after years and decades of cyclical high peaks and low valleys.

When they really need to they say that they can – by flexing muscles of persuasion and mutual interest among suppliers – cut expenses, forgo margins and, thereby price in more homebuyers.

But, this time anyway, they haven't had to. They're the only game in town thanks to locked-in existing homeowners, negligible resale inventory, and the ability to pay-down buyers' mortgage rates to their tolerance "magic number" of 6% or less.

What if "blue ocean" disrupters, however, start at the fringes of homebuilders' turf – say, on-your-lot – and begin to scale as alternatives to "the only game in town?"

That's a scenario for any number of modular and integrated offsite panelization and homebuilding facilities currently ramping up factory capability to scale a full- or almost full-stack platform of building as a solution services for residential developers.

One to watch is Vantem, which first launched in South America and the Caribbean, where the company has spent the past three years building. Like a number of offshore construction and development players, Vantem is pivoting strategic focus to opportunity in the U.S. In May, Greensboro, N.C.-based Vantem executives announced they'd acquired Lakeland, GA-based Affinity Building Systems as the first of a nationwide network of 15 to 20 factories Vantem plans to buy or start-up in a seven-year runway to scale.

Vantem was established by the private equity group TEM Capital, and in late November 2022, it closed a $10 million Series A round led by Bill Gates’ Breakthrough Energy Ventures. This past February, The Builder's Daily noted that Vantem earned honors as a top 25 Finalist for the 2023 Ivory Prize for Housing Affordability. We wrote:

Vantem builds affordable, energy-efficient, climate-resilient homes at scale. Vantem reduces the cost of delivering quality homes by leveraging an innovative structural panel technology to factory-craft modular structures, including full Net Zero homes.

According to Vantem's press statement at the time of the Affinity acquisition, the company talked of the importance of its first U.S. purchase.

Affinity joins Vantem as a well-respected, successful builder of high-quality, customizable modular homes. Once implemented, Vantem’s technology will allow Affinity to expand its portfolio with well-priced, higher energy-efficiency homes that are more hurricane and climate resistant. Vantem homes have withstood Category 5 hurricanes and are mold-resistant, termite-resistant, and fire-retardant. These homes are well-suited for homebuyers in the Southeast who’ve experienced the destruction caused by hurricanes and are looking for resilient new homes or rebuild options.
Homes built with Vantem’s technology are highly energy efficient – up to 70% more efficient than traditional construction with no cost premium. Affinity will soon offer Net-Zero options that do not require electricity from the grid."

Recently, we had an opportunity to spend time on a Zoom visit with Vantem ceo Chris Anderson, and Wayne Morrison, cfo of Vantem, who has stepped up to succeed Affinity Building Systems founder Tony Watson (retired), as the operation's new ceo.

High-level, here are the take-aways from an expansive conversation, that importantly, set Vantem's approach apart from other modular and prefabrication players driving to scale their building-as-a-solution operational models and business build-out. Of particular interest, Vantem's CapEx light and JV-affiliate system model will allow Vantem to scale faster on less "borrowed time" from a capital investment and lending  perspective.

  • Each factory will have annual production capacity of a million sqft of homes.
  • Factories are set up as joint ventures with local developers
  • Vantem provides turnkey plant/ Partner brings pipeline, with a revenue split formula between Vantem and the developer
  • Factories are smaller, therefore inexpensive - $20m to build
  • Vantem says its buildings are 30% less expensive than typical net-zero construction
  • Tentative plans focus on new factories in 2023 in Arizona, California, Texas, and the Dakotas
  • Focusing on single-family through 3-story multifamily
  • Most U.S. partners will be focused on affordably-priced, sustainable market-rate housing

Here's a curated excerpt from the conversation we had with Vantem ceo Chris Anderson, and new Affinity Building Systems ceo Wayne Morrison.

Strategy, value proposition, operational model

Chris Anderson

We are focused on building affordable, energy efficient homes, that are climate resilient, and doing that at scale. That's our mission. And we've embarked on a strategy of building or acquiring 20 factories in the United States over the next 10 years. The space that we specifically are looking to address is residential single family to three story multifamily initially.
For us, the energy efficiency component is equally as important as the affordability. Something we're really proud of is that a lot of solutions not only in the building space, but in other other industries that are energy efficient or more environmentally friendly carry a green premium. They're more expensive. We don't. We're able to deliver a green product, a better product for our climate and Co2 reductions over time, at a cost that's actually affordable to people. The acquisition of Affinity is a first really important step for us in the US. Market.
And what we're looking to do in that acquisition specifically is build on a great company. Affinity has been building a very good product, a very resilient product. It's proven out in high hurricane conditions very, very well. They make a great product aesthetically. We are injecting the Vantem technology to make it even better. So adding in particular, higher energy efficiency to the to the envelopes of Affinity products will let us manufacture Net Zero products which will be a new offering for Vantem and for Affinity and its customer base."

Wayne Morrison

We're excited about not only where Affinity is today but where it will be, even in the next five to six months A we start to introduce the Vantem panel as an alternative to our current stick-built home."

How the Vantem Platform Works

Chris Anderson

Vantem is the brand that will unify of all of these different business units that we'll be acquiring or creating. Our strategy is to implement the Vantem system in each one of these entities. The Coca-Cola comparison is one that we sometimes use. That' roughly what we are doing. We're supplying each one of these affiliates with with the Vantem technology and certain elements of the Vantage technology used to make our our very special panel. Each one of these these local entities much like a local Coca Cola Bottling Company is the one that is this that is doing all that hard work on the ground of supporting customers, distribution, logistics and so forth. It's similar in that respect.
What is a bit different is that each one of the regions in the United States is different; the needs are slightly different. So the exact product that's been delivered, ends up being slightly different. So in some places, we might have a lot more single-family that are larger and footprint say a place like Texas versus in the Northeast where you'll have, you know, more multifamily, more than likely with solid smaller footprint. So you know, each one of those things are kind of the local flavors that we adjust to in in doing that rollout."

Investment Capital Runway

Chris Anderson

One of the things we're quite proud of is the the, the type of investors that we have. We have two long term investors that have been on board almost from the beginning 10 or 12 years ago, in the form of TEM Capital and Quadrant Management. TEM Capital focuses on on energy efficiency and transformative materials. Quadrant is essentially a family office with a very broad platform, and a lot of operating experience. Then most recently, we've had Breakthrough Energy Bill Gates's fund for climate change mitigation, CO2 reduction, specifically, come on board last year, and another very strong family office came on board this year with our latest round.
We feel well prepared. But all that said, another thing that we're really proud of is it is different than other companies in the space and maybe companies you're thinking of when you think of large, dizzying amounts of money being being raised is that our business model is very capital light and capital efficient. So we do not aim to be in fundraising mode perpetually. We do not require as much capital expenditure to to open a Vantem plant. Our technology is simpler, so the automation is less expensive. Our capital model is very efficient. The real health long term for the company is really fundamentally there."

How To Avoid Becoming Commoditized?

Chris Anderson

That's really at the core of why we partner with strong partners. They have the local know-how with our customer partners – typically developers or builders. That's one of the big things that they bring to the kind of that that integration of Vantem and themselves. We as Vantem bring to them, the know-how and the capability to deliver these modular products that are energy efficient and affordable. By partnering with us, those partners mitigate their risk. They're mitigating their on-site construction risk. They're now able to buy a product that's that's not only more efficient and affordable, but it's also done offsite. 80% of what is typically onsite labor is now being done offsite. And, and those risks of onsite construction are off the table. Now, from our end, they help us mitigate the risk by by having those healthy pipelines and by being really good at what you just said -- The Land entitlement, the market savvy, the placement of these products. Where we I think excel is at structuring these partnerships that that mitigate each side's risks by coming together and doing business together."

Competing with On-Site Building

Chris Anderson

The main competition is site building. And when we compare ourselves to site building, we are more cost effective, more energy efficient and more climate resilient. So, against all of the comparisons, the quotes that we've done so far, against site building, we win hands down. We're not really that worried about that. If anything, I would say that having more solutions come to the market will be helpful. That's because, in affordable housing some of the key holdups for more adoption of affordable housing, revolve around zoning, and code approvals, and such and I think as as more innovative solutions comes to come to market, the slowness subsides in those processes. They're an important holdup on on building more affordable housing. That slowness should start to subside as these entities become more familiar with new and innovative solutions."

ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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